Publication: China Brief Volume: 5 Issue: 21

On February 4, 1959, Sudan became the fourth African government to establish official relations with China, but no significant ties between the two emerged until mid-1990s when Beijing began its pursuit of external energy resources. By that time, Beijing had already decided to establish oil bases abroad by investing and participating in the exploration, development, and construction of oilfields and pipelines “to guarantee our country’s long term and steady supply of crude oil import.” Launched only ten years ago, this policy has already paid handsome dividends in Sudan, based on oil production sharing agreements (PSAs) and other investments.

China’s dominant presence in Sudan is mostly related to oil. In 1996, China National Petroleum Corporation (CNPC) paid US $441 million to acquire a 40 percent majority share in the Greater Nile Petroleum Operating Company (GNPOC), a recently created consortium. In May 1997, it won a large-scale, 20-year project for the production and transportation of oil in western Kordofan, covering three blocks in the Mughlad Basin: Unity (number 1), Heglig (number 2) and Kaikang (number 4). As of January 2005 these three oilfields produced 325,000 barrels per day (bpd). China also played a major role in the construction of a US $1 billion, 1,506 km export pipeline by providing engineering, equipment and construction of the fields’ facilities and the pipeline, and 70 percent of the line supplies. On June 23, 1999, oil began to flow into the new pipeline. Exactly a week later, a new refinery was inaugurated north of Khartoum. At the time it could process 50,000 bpd (about 2.5 million tons a year), but increased in June 2004 to 70,000 bpd. CNCP provided half of the total investment of US $540 million, and built and presently operates the refinery. On August 30, 1999 Sudan became a net oil exporter for the first time, exporting 600,000 barrels of oil from Port Bashir, a new 2 million ton oil terminal built by China 25 km south of Port Sudan. (Energy Information Agency, Country Analysis Brief – Sudan, March 2005)

China soon after expanded its presence in Sudan. On October 1, 2001, the Petrodar Operating Company (PDOC) was established, with CNCP holding 41 percent of the shares and 6 percent owned by Sinopec. PDOC controls 72,000 km2, covering blocks 3 and 7 in the Melut basin, east of China’s other Sudan concessions. Initial oil exports from Melut started in August 2005, although full production is not expected until 2006. China Petroleum Engineering and Construction Group has been chosen to build a US $215 million oil terminal to service blocks 3 and 7. CNPC also holds a 96 percent PSA in block number 6 (western Kordofan and southern Darfur), which began production in November 2004 at a current base rate of 10,000 bpd that is expected to reach 170,000 bpd. Also, in a deal signed in late August 2003 CNPC was commissioned to build a 730 km oil pipeline from the Fula oilfields in Western Kordofan to the main oil refinery in Khartoum, and CNPC offered US $340 to expand this refinery’s capacity to 100,000 bpd. According to CNPC, about half of all its overseas oil comes from Sudan, which is by far its largest overseas operation at over three times that of Kazakhstan. (Energy Information Agency, Country Analysis Brief – Sudan, March 2005)

China is now Sudan’s main oil producer, exporter, and importer. In 1999 China’s oil imports from Sudan were a modest 266,126 tons, less than one percent of total oil imports. Yet a year later oil imports from Sudan rose dramatically to 3,312,591 tons (or 4.72 percent of China’s total oil import). By 2002 it nearly doubled to 6,425,447 tons (9.26 percent), turning Sudan into China’s fourth largest oil supplier, following Saudi Arabia, Iran, and Oman. Although Chinese-controlled oil production in Sudan further increased in 2004 and 2005, Sudan’s relative share in China’s imports declined, meaning that China imported more oil from other producers or sold Sudanese oil to other customers. Still, Sudan will remain a major source of oil for China: proven reserves by the end of 2004 stood at 630–700 million barrels (and estimated 5 billion barrels in total reserves), a level that could last for 57 years. Although Sudan’s share in the world’s total oil production is no more than 0.4 percent, massive oil exports to China affects bilateral trade. China’s total imports from Sudan increased tenfold, from US $1.47 million in 1998—before the “oil boom”—to US $1.71 billion in 2004. In 2004, 64.3 percent of Sudan’s total exports went to China, which is also one of Sudan’s two top sources of imports. China is thus Sudan’s top trading partner. (Almanac of China’s Foreign Economic Relations and Trade, various years and China Statistical Yearbook)

In 2002, Sudan was also number five (in terms of turnover) on the list of China’s contracted projects and labor services, after Hong Kong, Singapore, Japan, and the United States. Apart from the oil industry, the Chinese are active in Sudan’s power industry. Harbin Power Company built the Qarre I Station, about 50 km north of Khartoum, at a cost of US $149 million provided by China’s Central Bank. Together with nearby Qarre II it will produce 330 megawatts. The Chinese also participate in the construction and funding of hydropower plants, including an 85 percent investment in the US $470 million 300 megawatt Kajbar Dam construction and the 2,500 megawatt Merowe (Hamdab) Dam, 400 km north of Khartoum, at a total cost of US $1.73 billion, largely financed by Chinese Government credit loans. When completed in 2008, it would reportedly double or even triple Sudan’s electricity-generating capacity and increase Sudan’s irrigation system and cultivated area by nearly 50 percent. The Chinese admitted that the project has political value and “is not a purely commercial one.” A US $555 million agreement to build the dam was signed on June 8, 2003. In support of the dam China is also building a 1,745 km power transmission line and transformation stations, the longest ever built in Sudan. Launched in early 2004, this project is due to be completed in 2007 at a cost of nearly US $466 million. Of the 15 most important foreign companies operating in Sudan, 13 are Chinese. (Jean-Christophe Servant, “China’s Trade Safari in Africa,” Le Monde Diplomatique, May 30, 2005; Interfax News Agency, March 8, 2004; Financial Times, April 12, 2005)

In 2002, at a cost of US $23 million, China’s Petroleum and Natural Gas Exploration and Development Corporation established Sudan’s polypropylene project in Khartoum. China also holds 50 percent of the Khartoum Chemical Industry Company and 100 percent of Sudan’s Petrochemical Trade Project. In 2002 China also gave Sudan a US $2.5 million grant to rehabilitate a Radiotherapy Hospital. In June 2004, Beijing signed a US $3.6 million preferential loan agreement with Khartoum for a new International Conference Hall as well as for training Sudan’s Ministry of International Cooperation employees. At nearly US $15 billion, China is the largest foreign investor in Sudan. Available foreign exchange reserves (US $711 billion in June 2005), however, are not the primary explanation for Beijing’s success in Sudan.

China’s predominance in Sudan is an outcome of two complementary processes: China’s search for energy supplies, and Sudan’s internal deterioration. Declining security conditions, the growing abuse of human rights, and Khartoum’s alleged support terrorism have created a vacuum that has sucked China into Sudan. This has discouraged American and other Western oil and other companies from dealing with Khartoum beginning in the 1980s and through the early 2000s, thereby paving the ground for the Chinese. While Chevron finally abandoned its investments in Sudan’s oilfields in 1992 for security reasons, other U.S. companies (such as Occidental Petroleum Corporation) have been barred by Congress from dealing with Sudan for supporting international terrorism. Furthermore, Washington, as well as human rights organizations, have also applied pressure on non-American oil firms (for example, Canada’s Talisman, Austria’s OMV and Sweden’s Lundin) to withdraw from Sudan or drastically cut down their business there. Some companies (e.g. TotalFinaElf) have failed to develop their concessions because of the internal war. China has quickly filled the gap.

With extensive operations in Sudan, China has attracted fire not only for fraternizing with a supporter of terrorism but also for arming Sudan and practically participating in its human rights abuse by cooperating in the forced displacement of peasants from some oil concession regions. Eyewitnesses have testified to seeing Chinese-made trucks and military vehicles at these areas, as well as Sudanese troops carrying Chinese-made weapons. Reportedly, of the tens of thousands of Chinese workers in Sudan, at least some—and some say many—are demobilized People’s Liberation Army soldiers. Occasionally, China is also associated, though indirectly, with the atrocities in Darfur. These allegations—and the intensive Chinese activities in Sudan—have led to considerable friction with the United States, and have drawn a good deal of criticism from Washington that invokes not only moral values but also charges of “crude” political, strategic and commercial interests.

Yet, China’s position in Sudan is more complex and less secure than we may assume. To a great extent, its achievements are an outcome of Sudan’s domestic instability and international isolation. In this respect, Beijing should be interested in continued unrest in Sudan, and even in human rights abuse that scare away more powerful competitors, primarily Western. The Chinese should realize that once Sudan’s internal conflicts are settled, Western companies—and governments—would return, at China’s expense. It is this concern, perhaps, that had driven Beijing to invest in Sudan as much and as fast as possible so as to gain a solid long-term foothold and fend off potential rivals. This, however, by no means implies that the Chinese have a long-term interest in instability in Sudan (or elsewhere), let alone in fomenting it. On the contrary, a basic cornerstone of China’s post-Mao international behavior is that instability abroad—and at home—is detrimental for China’s economic growth. This attitude is also evident in Sudan.

On one level, recent trends indicate that China has not transferred arms to Sudan, as compared to levels in previous decades. In the 1970s and 1980s China provided Sudan with tanks, armored personnel carriers and artillery pieces, four obsolete aircraft and some light weapons. In the ten years from 1994 to 2004, the only major weapons that Sudan bought from China were 6-7 F-7M Airguard fighters (an upgraded MiG-21) ordered around 1995 and delivered around 1997, valued at US$66 million (or 9.3 percent of the total value of Sudan’s arms import at that period). According to data from the Stockholm International Peace Research Institute, most of Sudan’s military arsenal has come from Russia (77.4 percent)—not from China.

Furthermore, in Sudan—and elsewhere—China has consistently rejected external interference in internal conflicts, occasionally including the UN, and has traditionally avoided taking sides. This policy, which goes back to the 1970s, is reflected in Beijing’s attitude toward Sudan’s 22-year-old civil war and the more recent Darfur crisis. Still China, which in Mao’s time supported national liberation movements, could no longer identify with the separatist agenda of the Sudan People’s Liberation Army that fought Khartoum since 1983 for self-determination. Supporting this claim could have had disastrous implications for China’s own struggle against separatism at home, not to mention its oil interests. This is why Beijing was pleased by the progress made in the negotiations to restore peace and stability in Sudan, all the more so since rebel forces have often targeted Chinese oil pipelines, facilities, and workers. Beijing, which had earlier agreed to join the UN peacekeeping operation in Sudan, eagerly welcomed the dramatic reconciliation reached last June between Sudan’s government and the main opposition groups. When the new Vice President and former rebel leader John Garang was killed in a helicopter crash in early August, Beijing expressed the hope that the peace process would continue.

With regard to the violence in Darfur that flared up in February 2003, China’s position is similar. In the UN Security Council, China abstained in the vote to impose sanctions on Sudan. It emphasized the need to find a political solution to the crisis and offer humanitarian assistance rather than condemning and criticizing Sudan and “artificially creating obstacles.” In September 2004, the Chinese threatened to use their veto power if an attempt be made to impose an oil embargo on Sudan. On the vote to refer Darfur suspects to the International Criminal Court in The Hague, the PRC (and the U.S.) abstained. As mentioned above, China has oil interests in Darfur and, according to its Ministry of Foreign Affairs, there are some 3,000 Chinese citizens, mostly executives and workers of Chinese companies engaged in contracted projects, staying in Darfur (Zhongguo Qingnian Bao, August 10, 2004).

The Western, primarily American, irritation about China’s growing involvement in Sudan (as well as in Pakistan, Myanmar and South America) reflects concern not just about the competition over energy resources and commodities but primarily about China’s new international behavior. From a passive, reactive, and isolated traditional regional power China is becoming more active, interactive, interconnected and modernizing global power.